Kenya has made significant progress in energy transition, with 89% of electricity generated from renewable sources, with solar power accounting for 1% in 2021. In Kenya, the ideal potential for solar energy is 4-6 kWh/ m2/day levels of insolation because it is located near the equator, with an average of 5-7 sunshine hours each day. The country has an estimated solar potential of 15,000 MW. Currently, the installed capacity is slightly more than 100 MW, with the Garissa Solar power project, worth Ksh 13.5 billion, accounting for the largest installation of 55 MW capacity. In addition, the 52 MW Malindi solar plant in the coastal part of Kenya and the Kesses 1 (55 MW), Cedate (40 MW) and Selenkei (40MW) solar generation plants are meant to serve people by reducing carbon emissions. Despite this increase, the uptake by manufacturing firms is still low.
East African Breweries Limited (EABL) in 2019 announced an investment of Ksh 22 billion in renewable energy, including solar energy, biomass power, and water recovery. The company aims to entirely shift from use of electricity from the national grid by 2030 and set up its own solar power. It targets to generate at least 2.4 MW and 9.3 MW at its Kisumu and Ruaraka solar power plants, respectively. In the Kisumu power plant, 10% of the company’s electricity demand is being met by renewable energy from solar. In addition, it is seeking to set up a solar generation plant of estimated 2.2 MW for its subsidiary East Africa Maltings Limited. Other than cutting costs on electricity and sustainability, the project is aimed at creating more clean jobs.
Bamburi Cement also announced an elaborate plan to source a portion of its power supply from solar energy to reduce expenditure on power and reduce the impact of electricity blackouts in the main grid. The company signed a Power Purchase Agreement with an independent producer to set up two solar plants for its Mombasa and Nairobi plants. The move from using electricity to solar as a source of power has reduced the cost of electricity for Bamburi cement by 10%, which translates to Ksh 600 million per annum.
London Distillers Kenya (LDK) has also cut power costs by 50% since it started using solar power in 2018 in its Athi River power plant, which has a capacity of 924 MW. Currently, it is seeking to boost its installed capacity and cut dependence from the national grid by 80%. This will be done by harnessing energy storage so that solar power can also be used at night.
Cost of electricity
When compared to other countries within the region (Africa), Kenyan manufacturers pay up to four times more for electricity. Currently, the tariff for industrial consumers is at US cts 16/kWh compared to Tanzania US cts 7/kWh, Uganda US cts 12/kWh, Ethiopia US cts 4/kWh, Egypt US cts 6/kWh and South Africa US cts 9/kWh.
The cost of electricity production from various sources is changing. Energy from solar plants has the least cost compared with other sources. For example, it was estimated that worldwide in 2017, the cost of solar production had decreased by 86% since 2009. The cost of producing a megawatt of electricity per hour according to Lazard’s math is around US$ 50 for solar power while for coal it can cost up to US$ 102, which is double that of solar. In addition, worldwide, solar electricity is 20-50% cheaper according to International Energy Agency (IEA), with the range depending on the region. With the best locations and with access to policies and financials, solar can generate electricity below US$ 20 per megawatt-hour (MWh).
Source of energy
Energy security is a predictor of economic security and growth. When people have uninterrupted access to affordable energy, it can harness the energy to power factories, build cities and meet the needs of the growing population and the economy. However, generating electricity from other sources can lead to increased quantities of carbon dioxide (CO2) and generate greenhouse gases that can disrupt the atmosphere. Harnessing energy from renewable sources such as wind, solar, and geothermal, among others, is a solution to the climate and energy crisis. The sources are free and plentiful and if harnessed properly they have a very small impact on the environment. Unfortunately, in Kenya, solar power makes up a small fraction of the energy consumed. Solar energy is the most abundant renewable energy as it generates clean, affordable, and reliable electricity without greenhouse gas release and air pollution. The estimated consumption of solar energy worldwide is 15 terawatts, with the sun depositing 173,000 terawatts (TW) of solar radiation.
Quality of energy
The quality of energy supply is also low because the country lacks different investments in power production, and it heavily relies on hydroelectric power and geothermal power, which account for 29.6% and 40.6%, respectively. It makes Kenyan companies experience power outages, which amount to an average loss of Ksh 6.3 million per month. Every outage takes an average of 5 hours, which accounts for 7% of losses incurred by manufacturing firms. During power, outages, power is supplied from emergency power supplies and the generators for obtaining power are medium-speed diesel power plants and high-speed diesel plants, which cost higher than normal. The emergency power supplies make a significant contribution of more than 30% of productive capacity to energy costs from such plants, which varies from 26 to 36 cents for every unit.
In addition, the situation was exacerbated in 2017 when drought slashed hydroelectricity generation, the main source of power. The water level was low and could not allow for the continued generation of electricity. The 40 MW Masinga hydroelectric power station was shut down twice. Also, the 80 MW Sondu Miriu hydroelectric power station was affected and could produce only 10 MW. The country was forced to use diesel generators, which forced the cost to rise to Ksh 3.52 (US$0.03) Kilowatt per hour, which implied an increase from Ksh 2.85.
Competitiveness of manufacturing
High costs of energy affect product competitiveness. The rising costs of energy pose a challenge to manufacturing firms as they strive to strengthen the competitiveness of locally manufactured goods in comparison to imports. Kenya is 13% disadvantaged when compared with other countries. Inefficient use of energy within manufacturing leads to a wastage of between 10-30% since the products tend to be expensive. With high energy costs, domestic wealth creation is affected since consumers opt for cheaper imports. For example, Kenafric Industries chose to shift to footwear business at the time when plastic shoes were common to remain competitive.
Several plans have been developed to support Kenya’s future energy needs. The “Least Cost Power Development Plan” contains innovative and brilliant ideas. However, when it comes to solar energy, there is no provision for the generation of electricity from solar energy sources. The decision to omit solar energy is attributed to assumptions that solar technology is expensive, which is not the case, since solar energy expenses are only incurred at installation.
High installation cost and lack of technology
Access to solar equipment has become a nightmare for many people in Kenya. From installation, maintenance and associated costs are beyond reach for many. The installation bills are high, which is followed by high maintenance costs. Kenya imports most of the technology, including the equipment and expertise, which drives the cost further. In addition, the cost of storing solar power is also high because batteries required are quite expensive for storage to use at night and during rainy days.
Substandard solar products
Kenya has experienced an increase of substandard and counterfeit solar products in the market, which interfere with the efforts to promote the use of solar energy. Some of the challenges faced with counterfeit products are early product failures resulting in loss of interest in solar energy. It is estimated that about 25,000 to 30,000 solar products are traded yearly in the Kenyan market. The counterfeit and substandard products hurt the sale of genuine products and deny customers value for their money. It is estimated that one in every five products in the Kenyan market is substandard, with up to 4 million of the total population using counterfeit products.
The Kenya Power and Lighting Company (KPLC) in January 2022 cut retail tariffs by 15% as part of a plan to reduce the cost of power by 30% by the end of March of the same year. This is part of the implementation of the recommendation of the Presidential Task Force on Power Purchase Agreements, which targeted to restructure the sector to reduce the cost of power to individuals, customers, and enterprises by at least 33%. The National Treasury also allocated a subsidy amounting to Ksh 7.05 billion in the 2022/23 financial year to KPLC to lower electricity bills by 15%.
The government has sought the expansion of renewable energy generation in the 2017 to 2037 power development plan. This is one way to improve the quality of energy supply. The emphasis with respect to solar energy is to install a solar power capacity of 852 MW by 2037. The government has established the Kenya National Energy Efficiency and Conservation Strategy (NEECS) to coordinate energy efficiency in most sectors. Under NEECS, the Centre for Energy Efficiency and Conservation (CEEC) is aimed at increasing energy audits in the manufacturing sector from 1,800 to 4,000 during 2019-2025. Also, the Energy Act No. 1 of 2019 recognizes that renewable energy sources, solar included, have the potential to generate income and employment in addition to providing electricity supply and diversification of generation sources. The Act also provides a Feed-in Tariff (FIT) system aimed at diversifying the generation of electricity through renewable energy sources and encouraging innovations in renewable energy technology and reducing greenhouse gas emissions. This will ensure that the country generates and uses quality energy that is environmentally friendly.
There are various efforts being made in solar energy supply. These include the Finance Act No. 8 of 2021, which amended the Value Added Tax (VAT) Act to exempt the taxation of solar and wind energy specialized equipment. This came after the imposition of 14% VAT on solar equipment in 2020, which made solar equipment quite unaffordable. Also, through the Ministry of Energy, the government has initiated programmes to electrify schools and health facilities in rural areas using solar energy. This includes the provision of solar-powered laptops to primary schools. Several other players in the industry have also developed customized solar solutions such as solar home systems, solar lanterns, and solar refrigerators, among others, with the intention of meeting the power needs of the rural population. The government has also initiated the development of solar mini grids in areas that are quite distant from the national grid. The Energy and Petroleum Regulatory Authority (EPRA) developed and gazetted Solar Photovoltaic System Regulations in 2012, which sought to streamline the solar PV industry. The regulations provide for licensing of practitioners in the solar industry to ensure that standards are upheld when carrying out solar installations.
In 2020, it was estimated that 500,000 rural households had solar home systems. This was attributed to efforts of private sector activity. The upsurge in the uptake of solar was due to the sale of products that best fit the purchasing power of rural households and making these products within the reach of potential customers. There are various companies, which include M-Kopa, Sun King, Mobisol, Azuri, B-Box, among others, that offer customers’ packages that run lights, TV sets, and sound systems. The companies have made payment flexible and vary from daily, weekly, or monthly by use of mobile platforms for a given period before customers fully own the products. Various homes, hotels, hospitals, and learning institutions have also adopted solar water heating systems, adding to the increase in the consumption of solar energy.
The government is making efforts in fighting substandard solar products in the market. Everyone who sells a solar product must have a vendor license issued by EPRA. Also, members of the public are allowed to report the presence of poor-quality solar products to EPRA for action to be taken.
Gaps and lessons from other countries
The installed global capacity of solar has surged over time, with China as the leading installer of solar energy. To increase the uptake of solar, the Government of China offered subsidies for solar energy commercial projects in the 2010s. China currently manufactures and supplies more than 80% of the global solar photovoltaic (PV) panels. Kenya has inadequate industrial capacity to manufacture its solar cells, which has led to a high cost of importation and thus making solar equipment unaffordable.
The United States has the second-largest installed solar capacity. One of the key drivers for the growth of solar in the US is the renewable portfolio standards (RPS) regulation that requires energy retailers to supply a certain percentage of electricity from renewable sources. Also, in the US, solar PV systems installed in 2020 and 2021 are eligible for a 26% tax credit. Other than exempting VAT on solar products, Kenya can similarly impose a regulation requiring manufacturers to supply a specified percentage of their power from solar energy.
For Germany, the government incentivizes solar power producers through remuneration for excess generation. Japanese authorities provide a rebate of up to US$ 2,350/kW for solar projects ranging in size from 10 kW to 50 kW. Projects above 50 kW are assigned a rebate of US$ 1545 /kW. In Kenya, the Feed-In Tariff policy has seen delays in its implementation due to the unavailability of adequate technical expertise for policy design, and inefficiencies in policy implementation.
In India, the government introduced a new incentive scheme to boost manufacturing in the solar power sector through allocation of US$ 600 million during the 2022/23 financial year in incentives over the next five years.
Despite the efforts by the government to fight substandard products in the market, there is an influx. This has made people to lose trust in the products, hindering efforts to transition to solar energy. In Kenya, it is estimated that one in every five products in the Kenyan market is substandard, with up to 4 million of the total population using counterfeit products.
Conclusion and Way Forward
Utilizing solar energy in manufacturing firms is one way to cut down on energy costs. The cost of power generated from the electricity grid continues to be more volatile and has been rising. Solar energy, therefore, protects manufacturers from unpredictable market fluctuations, thus offering more stable energy options needed for sustainable growth. Adoption of solar energy will also contribute to the achievement of SDG 7 on access to affordable, reliable, sustainable, and modern energy for all. Therefore, to increase solar energy adoption in the manufacturing sector, the following policy recommendations are proposed:
- To increase the uptake of solar, the government may offer subsidies for solar energy commercial projects.
- There is a need to restructure the implementation process of the Feed-In Tariff policy by allowing engagement of stakeholders to allow for the creation of workable implementation plans. Also, the policy should be revised to be retained for projects below 10 MW and for projects above 10 MW to be included in the auction policy.
- Introduction of mini-grids by focusing on small-scale projects rather than concentrating on mega solar projects, that is; focusing on solar energy for industries will see the country improve its manufacturing power.
- Introduction of net metering to help save the excess energy generated by the companies by connecting small-scale renewable energy systems to the main grid will ensure solar energy is integrated efficiently and reliably.
- The government could consider focusing on the solar industrial revolution by investing in the industrial capacity needed to manufacture solar cells to scale up its adoption and minimize importation costs.
- A solar energy system can help manufacturers insulate themselves against fluctuations and increases in power bills. Integrating a solar power system with batteries will help in cases of power outages. The set-up will reduce dependency on the utility grid and help in the provision of clean and reliable solar power.
- There is a need for the solar industry together with its regulators to ensure a system of checks and balances where high-quality products can be distinguished from substandard products and ensure substandard products are denied entry to the market.
Authors: Joash Odhiambo Okeyo, Young Professional, Strategy and Planning Department
Mercy Kalondu Peter, Young Professional, Strategy and Planning Department